Island View Storage (Pty) Ltd - HC 12262/2012 KZN - 8 April 2014

This case considers whether rebate item 624.50 in schedule 6 to the Customs and Excise Act No. 91 of 1964 ("the Act”) is applicable to a taxpayer who had ethanol stolen from their storage facility, which was licenced by the South African Revenue Services (SARS) as a customs and excise warehouse in terms of section 19 and 21 of the Act.

Rebate item 624.50 in schedule 6 to the Act provides for a rebate of duty where goods which are subject to excise duty are proven to have "been lost, destroyed or damaged, on any single occasion in the circumstances of viz major (i.e. an act of God) or in such other circumstances as the Commission(er)…deems exceptional while such goods are…in any customs and excise warehouse.”

The case alternatively considers whether the taxpayer is entitled to a section 76(2)(d) refund.

This provision requires the Commissioner to consider any application for a refundfrom any applicant who contends that he has paid any duty or other charge (under the Act) for which he was not liable because the goods concerned were damaged, destroyed or irrecoverably lost by circumstances beyond his control prior to their release for home consumption.

Facts

Island View Storage (Pty) Ltd (IVS) conducts business as a third party liquid bulk storage facility within the port of Durban. The storage facilities are licensed by SARS as a customs and excise storage warehouse in accordance with the Act.

On the 29th June 2009 IVS discovered a loss of 35 839 kg of ethanol from its warehouse. After conducting an investigation into the matter, it was discovered that the ethanol was stolen by certain individuals in collaboration with one of its employees. On 1 July 2009 IVS reported the theft to the police, who traced approximately 13 000 kg of the ethanol to a storage house in Pinetown. On 20 July 2009 the said ethanol was moved back to IVS’s premises. Theft of the ethanol was subsequently reported to SARS on 24 July 2009.

On 31 May 2010, SARS addressed a letter to the applicant demanding payment of R3. 46 million in respect of excise duties in terms of section 20 (5) of the Act. This provision calls for the payment of excise duty to SARS where goods stored in a SARS designated customs and excise storage warehouse are subsequently removed from the warehouse. Section 20(5) is however subject to any item in any Schedule to the Customs and Excise Act.

The dispute between SARS and IVS was over whether or not the stolen ethanol qualified for rebate item 624.50 in Schedule 6 to the Act.

IVS’s alternative contention was that in the event the court deems the rebate to be inapplicable, the duty qualifies for a refund in terms of section 76(2)(d) of the Act.

SARS’ argument was that the Schedule 6 rebate was not applicable because while IVS had furnished a detailed chronological sequence of events leading up to the loss of the ethanol, they had failed to furnish the most crucial piece of information: the actual underlying cause of the loss incurred. Because of this, the Commissioner considered the loss to be mysterious and not to have occurred under exceptional circumstances.

According to IVS, an employee on duty the evening of the theft had fallen asleep while on duty. When later confronted by his superiors, he confessed to being a participant in the theft. A disciplinary enquiry was held and he was dismissed. IVS representatives presented a piece of paper to the court purporting to be a statement from the guilty employee where he admitted to the course of events as presented by IVS.

Held

The court did not look favourably upon the fact that no affidavits were presented from the guilty employee or the colleagues to which he had supposedly confessed. After an analysis of all the evidence, it was held by Chili AJ at paragraph 14 that:

"The circumstances surrounding the loss of the said ethanol…are in my view nothing more than a conjecture and hearsay information.”

It was therefore concluded that the Commissioner had not wrongly exercised his discretion in finding that the loss had not occurred under exceptional circumstances.

Regarding the issue of whether IVS was entitled to the refund in terms of section 76(2)(d), the following was held by Chili AJ at paragraph 19:

"My problem in so far as the applicability of section 76(2) (d) supra is concerned is that the section deals with goods that have been ‘irrecoverably lost’ and goods that are meant for ‘home consumption.’ Regard being had to the applicant’s own version that the ethanol that disappeared from its warehouse was subsequently recorded from a warehouse in Pinetown, I am unable to say that the said ethanol was irrecoverably lost. Furthermore, it is the applicant’s own version that the said ethanol was not meant for home consumption. For the above reasons I am of the view that section 76 (2) (d) does not find application.”

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